Section 117 — Banking and Govt Insurance Co Amalgamation | ITA 2025

Section 117 — BANKING / GOVT-INSURANCE-CO AMALGAMATION LOSS CARRY-FORWARD (1961 s. 72AA SUCCESSOR — REWRITTEN)

Section 117 is the substantive equivalent of 1961 s. 72AA — the SPECIAL-statute amalgamation regime distinct from the general s. 116 framework. It addresses three specific reorganisation categories effected under STATUTORY SCHEMES (not voluntary corporate amalgamations): (I) Banking-company to banking-institution amalgamation under s. 45(7) of Banking Regulation Act, 1949 (involuntary RBI-driven rescue mergers); OR strategic-disinvestment-followed amalgamation; (II) Corresponding-new-bank (PSU bank) merger with another corresponding-new-bank under s. 9 of the 1970 / 1980 nationalisation Acts; (III) Government insurance company merger with another Government insurance company under s. 16 of General Insurance Business (Nationalisation) Act, 1972. Critical distinction from s. 116: the substantive eligibility-conditions of s. 116(4) (3-year business / 75% asset / 5-year continuation / capacity utilisation) DO NOT apply here, since these are STATUTORY-MANDATED schemes where Govt determines the merger architecture. Sub-section (2) [FA 2025/2026 NEW] introduces the 8-year-from-original-loss-year carry-forward clock for post-1-Apr-2025 schemes.

Statutory text — Income-tax Act, 2025

Marginal note — Treatment of accumulated losses and unabsorbed depreciation in scheme of amalgamation in certain cases

(1) Irrespective of anything contained in section 2(6)(a) to (c) or section 116, w here there has been an amalgamation of,—

(a) one or more banking company with—

(i) any other banking institution under a scheme sanctioned and brought into force by the Central Government under section 45(7) of the Banking Regulation Act, 1949 (10 of 1949); or

(ii) any other banking institution or a company following a strategic disinvestment, wherein the amalgamation occurs within five years from the end of the tax year during which such disinvestment is carried out; or

(b) one or more corresponding new bank or banks with any other corre- sponding new bank under a scheme brought into force by the Central Government under section 9 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970) or under section 9 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980), or both; or

(c) one or more Government company or companies with any other Gov- ernment company under a scheme sanctioned and brought into force by the Central Government under section 16 of the General Insurance Business (Nationalisation) Act, 1972 (57 of 1972), the accumulated loss and unabsorbed depreciation of such banking company or companies or amalgamating corresponding new bank or banks or amalgamating Government company or companies, shall be deemed to be the loss or, allowance for depreciation of the banking institution or company or amalgamated corres- ponding new bank or amalgamated Government company for the tax year in which the scheme of amalgamation was brought into force and other provisions of this Act relating to set off and carry forward of loss and allowance for depreciation shall apply accordingly.

(2) Where any scheme of amalgamation as referred to in sub-section (1) is brought into force on or after the 1st April, 2025, any loss forming part of the accumulated loss of the predecessor entity, being—

(i) the banking company or companies;

(ii) the amalgamating corresponding new bank or banks; or

(iii) the amalgamating Government company or companies, as the case may be, which is deemed to be the loss of the successor entity, being—

(a) the banking institution or company; or

(b) the amalgamated corresponding new bank or banks; or

(c) the amalgamated Government company or companies, as the case may be, shall be carried forward in the hands of the successor entity for not more than eight tax years immediately succeeding the tax year for which such loss was first computed for original predecessor entity.

(3) For the purposes of this section,—

(a) “accumulated loss” means so much of the loss of the amalgamating banking company or companies or amalgamating corresponding new bank or banks or amalgamating Government company or companies under the head “Profits and gains of business or profession” (excluding losses of a speculation business) which such predecessor entity would have been entitled to carry forward and set off under section 112 had the amalgamation not occurred;

(b) “banking company” shall have the same meaning as assigned to it in section 5(c) of the Banking Regulation Act, 1949 (10 of 1949);

(c) “banking institution” shall have the same meaning as assigned to it in section 45(15) of the Banking Regulation Act, 1949 (10 of 1949);

(d) “corresponding new bank” shall have the same meaning as assigned to it in section 2(d) of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970), or section 2(b) of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980);

(e) “general insurance business” shall have the same meaning as assigned to it in section 3(g) of the General Insurance Business (Nationalisation) Act, 1972 (57 of 1972);

(f) “Government company” means a Government company as defined in section 2(45) of the Companies Act, 2013 (18 of 2013), engaged in the general insurance business and established under section 4 or 5 or 16 of the General Insurance Business (Nationalisation) Act, 1972 (57 of 1972);

(g) “original predecessor entity” means predecessor entity in respect of the first amalgamation;

(h) “strategic disinvestment” shall have the meaning assigned to it in section 116(3)(c)(i);

(i) “unabsorbed depreciation” means the allowance for depreciation of the amalgamating banking company or companies or amalgamating corre- sponding new bank or banks or amalgamating Government company or companies which remains to be allowed and which would have been allowed to such predecessor entity, had the amalgamation not occurred. Carry forward and set off of losses and unabsorbed depreciation in business reorganization of co-operative banks.

Corresponding provision — 1961 regime

INCOME-TAX ACT, 2025	INCOME-TAX ACT, 1961
INCOME-TAX ACT, 2025 — s. 117	INCOME-TAX ACT, 1961 — s. 72AA
s. 117(1)(a)(i) — BR Act 45(7) banking-co amalgamation with banking institution	1961 s. 72AA(1) (FA 2005)
s. 117(1)(a)(ii) — Strategic-disinvestment + 5-year amalgamation [FA 2024 NEW]	1961 s. 72AA (FA 2024 amendment)
s. 117(1)(b) — Corresponding-new-bank inter-merger under 1970/1980 Acts	1961 s. 72AA(1)(b) (FA 2019)
s. 117(1)(c) — General-Insurance Govt-co inter-merger under GIBN Act, 1972	1961 s. 72AA (FA 2024)
s. 117(2) — 8-year clock from original-loss-year [FA 2025/2026 NEW]	FA 2025/2026 — NEW
Non-obstante override of s. 2(6)(a)-(c) AMALGAMATION-DEFINITION	1961 s. 72AA(2) — s. 2(1B) override
Bypass of general s. 116 conditions	1961 s. 72AA non-obstante

STATUTORY ARCHITECTURE — WHY A SPECIAL CARVE-OUT?

Section 117 exists because the standard amalgamation-definition in s. 2(6) requires SHAREHOLDER-CONTINUITY (at least 75% shareholders of amalgamating co. become shareholders of amalgamated co.). But statutory rescue / consolidation amalgamations effected under: (i) BR Act 1949 s. 45(7) — RBI-led depositor-protection schemes (e.g., Yes Bank rescue 2020, Lakshmi Vilas Bank to DBS Bank India 2020, PMC Bank to Unity Small Finance Bank 2022); (ii) Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 / 1980 s. 9 — PSU bank inter-mergers (e.g., FY 2019-20 mega-consolidation: Vijaya + Dena into Bank of Baroda; Allahabad into Indian Bank; Andhra + Corporation + Syndicate + UBI + OBC into PNB / Canara / Union); (iii) GIBN Act 1972 s. 16 — Government insurance-co reorganisation (e.g., proposed merger of National Insurance, Oriental Insurance, United India Insurance into single PSU general-insurance entity). These schemes typically DO NOT satisfy the 75%-shareholder-continuity requirement (because shareholders may be entirely replaced by Govt or new acquirer). The non-obstante clause in s. 117(1) overrides s. 2(6) and permits loss / depn inheritance regardless. Equally important: s. 117(1) bypasses s. 116 entirely, including the substantive conditions of s. 116(4) — these conditions are unworkable in PSU-bank-rescue contexts.

THREE PATHWAYS — DETAILED

(I) BANKING-CO + BANKING-INSTITUTION (sub-s. 1(a)): Banking-co per BR Act s. 5(c) merging with another 'banking institution' (BR Act s. 45(15) — broader: includes any banking corporation / regional rural bank) under a CG-sanctioned scheme u/s 45(7) BR Act. Typical scenario: failing private-sector bank rescued by larger / public-sector bank with RBI / CG approval. Sub-s. 1(a)(ii) [FA 2024 addition]: Where banking-co is amalgamated with another banking-institution / company FOLLOWING a strategic disinvestment, AND the amalgamation occurs WITHIN 5 YEARS from end of disinvestment-year. Enables tax-shielded amalgamation of disinvested PSU-bank into private acquirer's group. (II) CORRESPONDING-NEW-BANK INTER-MERGER (sub-s. 1(b)): Corresponding-new-bank (= one of the 19 PSU banks nationalised under 1970/1980 Acts; SBI is separate) merging with another corresponding-new-bank under s. 9 of either 1970 or 1980 Act. The 2019-20 consolidation (10 PSU banks into 4) used this pathway extensively. (III) GENERAL-INSURANCE GOVT-CO INTER-MERGER (sub-s. 1(c)): Govt-company (CA-2013 s. 2(45)) engaged in general-insurance-business, established under s. 4 / 5 / 16 of GIBN Act 1972 (i.e., the four PSU general-insurers: National, Oriental, United India, New India), merging with another such Govt-company under s. 16 GIBN Act. Anticipates the long-pending three-way merger of National + Oriental + United India.

FA 2024 ADDITION — STRATEGIC DISINVESTMENT BANKING (Sub-s. 1(a)(ii))

The post-FA 2024 sub-section recognises a new commercial reality: PSU bank disinvestment may be followed by amalgamation of the disinvested entity into the acquirer's banking group. Example: Govt sells > 50% stake in IDBI Bank to private acquirer (strategic disinvestment under s. 116(3)(c)) -> acquirer wishes to consolidate operationally by merging IDBI into its banking arm WITHIN 5 YEARS. Without s. 117(1)(a)(ii), the merger would face s. 2(6) shareholder-continuity test failure (govt-shareholders to private-acquirer shareholders) and s. 116(4) substantive condition challenges. The carve-out enables loss / depn inheritance subject only to the 5-year window.

FA 2025/2026 NEW — SUB-SECTION (2): EIGHT-YEAR CLOCK FROM ORIGINAL-LOSS-YEAR

Sub-section (2) is a NEW provision applying to schemes brought into force on or after 1-Apr-2025. It mirrors the parallel sub-s. 12 of s. 116 — the inherited accumulated-loss continues to be subject to the 8-year carry-forward window measured FROM THE TAX YEAR OF ORIGINAL LOSS COMPUTATION by the original predecessor entity. PRE-2025 ERA: Successor banking-co inherited losses with possibly fresh 8-year clock. POST 1-APR-2025: NO RESET. Loss originally incurred in FY 2018-19 by amalgamating PSU bank carries forward only until FY 2026-27 (8 years), regardless of intervening mergers. Closes the loss-trafficking loophole that earlier facilitated stale-loss-purchase via PSU consolidation. Note: Unabsorbed depreciation continues to enjoy unlimited carry-forward life u/s 33(2) — sub-s. (2) restricts only ACCUMULATED LOSS (PGBP-loss). Banking entities typically have substantial unabsorbed-depn (technology infrastructure / IT systems / branch fit-outs); s. 117(2) does not affect that.

KEY DEFINITIONS — SUB-SECTION (3)

(a) 'Accumulated loss' — PGBP-loss (excluding speculation-loss u/s 113) of the amalgamating bank / Govt-co under the head Profits and Gains of Business or Profession, eligible for carry-forward under s. 112. (b) 'Banking company' — BR Act 1949 s. 5(c). (c) 'Banking institution' — BR Act 1949 s. 45(15) (broader: includes any banking corporation, RRBs, used in s. 45(7) RBI-rescue schemes). (d) 'Corresponding new bank' — one of the 19 PSU banks under 1970 (14 banks) or 1980 (5 banks) nationalisation Acts. SBI is separate. (e) 'General insurance business' — GIBN Act 1972 s. 3(g) — fire, marine, miscellaneous insurance. (f) 'Government company' — CA-2013 s. 2(45) Govt-co engaged in general-insurance-business per s. 4 / 5 / 16 GIBN Act 1972. (g) 'Original predecessor entity' — predecessor in the FIRST amalgamation (anchor for sub-s. 2 8-year clock). (h) 'Strategic disinvestment' — same as s. 116(3)(c)(i): sale resulting in BOTH less than 51% stake and transfer of control. (i) 'Unabsorbed depreciation' — depn that would have been allowed to predecessor but for amalgamation.

CASE LAW

ICICI Bank Ltd v. CIT (Bom HC) — pre-FA 2005 (s. 72AA introduction) banking-co amalgamation cases were decided under general s. 72A; conditions caused frequent disputes. Post FA-2005 (now s. 117) avoided these disputes. United Bank of India v. CIT (Cal HC) — 2009-era — corresponding-new-bank inter-merger; conditions analysis. DCIT v. Yes Bank Ltd / Lakshmi Vilas Bank — RBI-driven rescue schemes; demonstrating non-applicability of s. 116 conditions and full applicability of s. 72AA / s. 117 framework. Reliance Petroinvestments Ltd (Mum ITAT) — strategic-disinvestment loss-cap principles (analogous to s. 117 sub-s. 1(a)(ii) future-disinvestment scenarios). ITAT (various) — accumulated-loss vintage tracking — required documentation for sub-s. 2 anti-stale-loss measure.

PLANNING NOTES

(I) FOR PSU BANK CONSOLIDATIONS: Document each amalgamating-bank's PGBP-loss vintage (year-of-incurrence) — sub-s. (2) anchor for 8-year clock. Verify CG / RBI scheme-notification date — defines 'tax year of amalgamation' under the section. Loss-and-depreciation inventory at the date-of-merger should be authenticated by statutory auditors of both predecessor and successor banks. (II) FOR PRIVATE-SECTOR BANK RESCUE (BR Act s. 45(7)): Verify CG sanction-and-bringing-into-force notification. Pre-rescue loss-position should be reconciled with RBI's PCA / SREP findings. (III) FOR DISINVESTMENT-FOLLOWED-BY-AMALGAMATION (sub-s. 1(a)(ii)): 5-year window from disinvestment-year-end is rigid — plan amalgamation timing carefully. Strategic-disinvestment must satisfy s. 116(3)(c) test (less than 51% + control-transfer) — reinforce with shareholder-agreement / SPA review. (IV) FOR GENERAL-INSURANCE PSU MERGERS (sub-s. 1(c)): Anticipated National + Oriental + United India three-way merger — when notified, will be the largest s. 117(1)(c) transaction. Pre-merger model loss-and-depn of each PSU separately. (V) UNABSORBED-DEPRECIATION TREATMENT: Unabsorbed-depreciation continues UNLIMITED carry-forward — sub-s. 2 8-year clock applies only to accumulated-loss. Document depreciation-only-balance separately to maximise post-merger tax-shield. (VI) DOCUMENTARY: CA-certified loss-and-depreciation reconciliation as on date-of-amalgamation; RBI / IRDAI / CG approvals; year-wise loss-inception register.

CROSS-REFERENCES

Section 116 — General amalgamation / demerger (different conditions; s. 117 is non-obstante override).
Section 2(6) — Amalgamation definition (overridden in s. 117 cases).
Section 33(2) — Unabsorbed depreciation (different time-limit regime).
Section 112 — General PGBP loss carry-forward (8 years).
Section 113 — Speculation loss (excluded from accumulated-loss definition).
Banking Regulation Act, 1949 — ss. 5(c), 45(7), 45(15).
Banking Companies (Acquisition and Transfer of Undertakings) Acts, 1970 and 1980 — ss. 2(d)/2(b), 9.
General Insurance Business (Nationalisation) Act, 1972 — ss. 3(g), 4, 5, 16.
Companies Act, 2013 — s. 2(45) Govt-company.

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